– “In the latest blow to Switzerland’s centuries-old banking practices, the country’s oldest bank pleaded guilty to a criminal conspiracy charge in the U.S. on Thursday and admitted that it helped wealthy Americans for years avoid tens of millions of dollars in taxes by hiding their income from secret accounts abroad. Wegelin and Co., founded in 1741, is the latest Swiss bank to reach a deal with U.S. prosecutors as they crack down on Americans who kept their money in secret accounts overseas and the entities which helped them. (http://online.wsj.com/article/SB10001424127887323874204578219572734283146.html)

Written by Ian R. Whiting, Consultant, and Gary Millar, Founder, Inter-Gen Consulting Group

When his doorbell rang that morning, Hervé Falciani could have never imagined how it would all turn out! Whatever his reasons for leaving Switzerland, it did not matter now. If he had left because he was mad at his treatment from his boomer bosses or motivated by his disgust at the obscene amounts hidden secretly in Swiss bank accounts, as he had seen in the bank records, or was he just a plain greedy thief? No one will ever know for sure? What is known is that he had left in a big hurry with HSBC banking customers’ private account details.

The door opened to a French Magistrate and Gendarmes, armed with an arrest order from the Swiss Government on charges of revealing banking secrets. An international arrest warrant was issued for Falciani, who is a citizen of Monaco with dual French and Italian citizenship. He is married with one child. Despite the fact his actions revealed thousands of cases of tax evasion all over Europe and some €10 billion (Euros) in lost taxes were recovered, Bern, Switzerland considers him a criminal, a thief. After explaining how he came to be named in the arrest warrant and revealing the data he had in his possession, the young Frenchman was subsequently offered life time housing, an annual pension for life and a new name, all for service to France!

It is from this point in the saga, the spin begins. In early 2009, an assistant prosecutor called for a search of Falciani’s family home. The routine operation became an unexpected gold-mine when information on approximately 130,000 accounts of alleged tax evaders was discovered. The prosecutor promptly opened an investigation, not aimed at Falciani but at the alleged tax evaders. The media learned of the investigation late in the summer of 2009.

How many people worldwide paid up or were forced to?
How much money was found by the governments?

The French Government announced that it had received a list of 3,000 holders of Swiss accounts but did not indicate the source of the data. The Government asked account holders’ to make themselves known to the tax authorities in order to legalize their situation. This prompted more than 4,000 people to come forward and France recouped about €1.2 billion in unpaid taxes.

In March of 2012, France announced it had recently launched inquiries on the basis of HSBC data allowing the Government to reclaim an additional €1 billion in unpaid taxes and penalties.

In the spring of 2010, the HSBC Spanish account holders’ information was passed on by France to the Spanish tax office and carefully reviewed. The Spanish officials asked suspected tax evaders to turn themselves in and to pay the taxes in addition to a fine. The amounts recovered in Spain based on the stolen HSBC information represents the most significant tax recovery in the history of the tax office. Allegedly, more than €6 billion was recovered. The list contained the names of many powerful people including the CEO of the Santander Bank.

On the Italian list sent by France, significant and well-known names appeared. That list contained nearly 7,000 people and included several fashion designers. By early fall of 2010, Italy completed most of their tax investigations and launched a tax amnesty aimed at luring dodgers to come clean by paying a very low penalty on their offshore accounts. As a result, a mind-blowing amount of €100 billion worth of accounts, were declared with two-thirds of that coming from Switzerland. It appears that the Italian tax authorities recovered close to €600 million in revenue based solely on the information passed along through Hervé Falciani.

On the morality of all of this, people have legitimate questions. Government and corporate morals are, at best, “flexible” and at worst subject to the greatest level of corruption imaginable and there is plenty of evidence to support either contention. The Wall Street Journal, the BBC and PressEurop have all written extensive articles on the fallout and twisted mystery surrounding one Hervé Falciani and one Georgina Mikhael – somewhere among the various webs and trails, lays the truth.

Should governments be relying on data that was obtained illegally – stolen or fraudulently obtained? Should governments be rewarding the people who stole the information in the first place? Or does the evasion of legitimate taxes owed justify the means used to collect them? What should be done about governments and countries that chose not to co-operate in matters relating to tax-fraud, money-laundering and the funding of terrorism and drug trafficking?

HSBC, UBS and other banks have recently paid huge fines in recent months of nearly US$5 billion as result of money laundering transactions that were ultimately revealed partially through tracing transactions in and out of these secret accounts.

In another case from 2012, Germany bought stolen Swiss account records from a bank employee. It isn’t known which banks’ records were acquired. Two years ago, Germany paid a €4.2 million (US$5.3 million) reward to another bank employee to buy stolen data from a Liechtenstein bank in order to chase more tax evaders.

As a result of these thefts and other “unauthorised” disclosures of information, US authorities accused UBS of having helped thousands of American taxpayers evade taxes by hiding money in secret Swiss accounts. After a lengthy and expensive legal battle, UBS agreed to turn over the names of nearly 4,500 US taxpayers to the IRS. This was done and hundreds of millions of dollars in tax revenue was recovered. In April of 2009, the OECD (Organisation for Economic Development and Co-operation) puts Switzerland on a “gray list” of uncooperative tax havens. A serious move indeed, this raised the specter of economic and banking access sanctions against the Alpine country. Subsequently, the Swiss government agreed to relax their bank secrecy laws.

The result: the Swiss Banking wall of secrecy has begun to crumble!

Did Hervé Falciani’s actions destroy the Swiss banking wall of secrecy? NO they did not. Swiss Legislative changes forced by OECD member-countries mean the Swiss banking system will co-operate with other governments when the Swiss receive “concrete evidence” of criminal activity, money-laundering, illegal tax evasion or fraud. Private numbered accounts can still exist as long as there is no illicit intent. However there are more than 130,000 people worldwide who have a different experience with their secret Swiss accounts being exposed to taxation as a result of Hervé Falciani’s actions.

So what has happened to Mr. Falciani as a result of his actions? Mr. Falciani could have stayed safely in France and lived out his life in government subsidized obscurity, under a different name; however he chose to attract attention to himself with interviews and travel to other countries. Subsequently he has been arrested in Spain, upon entry and is currently being held on an extradition warrant issued by Switzerland. The Swiss Government still considers him to be a thief and criminal.

What are the numbers involved?

The fines paid by HSBC, UBS and others may seem to be “get out of jail free” cards – none of the CEOs or other senior executives faced criminal charges and in fact, most are still running the same institutions and collecting large bonuses in the process.

If all of the numbers are to be believed, nearly 150,000 taxpayers around the world have been exposed or voluntary confessed the error of their ways. Recaptured taxes, penalties and fines have removed somewhere around €$12 billion from the economy – hopefully the beneficiary Governments use it to pay down some debt!

Truth be told, the fines are far too low – by a factor of at least 10. The $6 billion is just “chump change” and the “cost of doing business” for these large multi- and international financial firms. The fines certainly do not reflect the horrendous damage their actions have done to individuals and governments around the world to say nothing of the help given to terrorists and drug-traffickers. Virtually all of these recaptured taxes, penalties and fines can be traced back to the actions of one man.

What caused Hervé Falciani to steal confidential secret account records from HSBC Switzerland, after years of faithful service?

One of the points raised by the WSJ article may offer a clue. (Mr. Falciani said his goal was to expose security gaps at the bank, which he thought could harm clients and governments. Mr. Falciani says he alerted his bosses at HSBC in 2006 about flaws in data storage that could affect client confidentiality, but no one listened. HSBC officials said they found no such warnings by Mr. Falciani.)

Were the actions of Mr. Falciani triggered by his perception of unfair or biased treatment by his managers and senior executives at HSBC? On the surface, it would appear that Mr. Falciani was not on the best of terms with the management to whom he reported. The generational values of his bosses and their autocratic management style appeared to clash with his generational values. This resulted in a disconnection with the existing, long entrenched corporate culture of secrecy. It may be that this disconnect made it much easier for Mr. Falciani to cloak his theft with moral justifications. Whatever those moral justifications, he tried, together with his paramour, to get financial recognition from various countries before the French Gendarmes appeared at his door.

Inter-generational communication (and with it understanding), is key to keeping employees, associates and advisors happy in their roles. Each generation has widely varying personal needs and communications styles. Each generation employs very different means and language for communicating and building business relationships.

It is important for each of us, at work, at play and with our families, to take the time to learn how to communicate across generations. This will reduce miscommunications, misunderstandings and increase appreciation of other generations.

With credit and appreciation to The Wall Street Journal, the BBC, PressEurop and Wikipedia for their work and materials they have published on this matter.

The Inter-Gen Consulting Group is a consulting organization which provides on-site presentations, recruiting and employment advice as well as on-line Inter-Generational Education courses. (www.inter-gen.com)

Latest Falciani update:
MADRID — The Spanish National Court on Tuesday granted conditional freedom to a former HSBC employee wanted by the Swiss authorities in the theft of secret data on tens of thousands of private bank accounts. Switzerland’s extradition request presented a dilemma for Spain, given that the Spanish authorities had used the HSBC data against holders of secret bank accounts.

In their blog.nytimes.com describes which governments who have concluded tax treaties with Switzerland: Pressure Grows on Swiss Banks to Expose Tax Cheats’ Billions
By HARVEY MORRIS
http://rendezvous.blogs.nytimes.com/2012/12/06/pressure-grows-on-swiss-banks-to-expose-billionaires-millions/

]]>2241A bipolar economy and it’s impact on financial markets.http://money.ca/you_and_your_money/2012/12/13/a-bipolar-economy-and-its-impact-on-financial-markets/
Thu, 13 Dec 2012 12:00:12 +0000http://money.ca/you_and_your_money/?p=2044The economy and financial markets seem to be on a rollercoaster ride, with no end in sight. And for investors it sure feels like these bipolar symptoms – wild ups and downs – are becoming even more exaggerated as time goes on.

There’s medicine for bipolar disorder, and there should be government policy that mitigates the volatility. Unfortunately we voluntarily went off those policy meds, and in an effort to try to prolong the happy mood we now risk going off the rails.

Yesterday the Fed announced yet another round (QE4) of accomodative easing to replace Operation Twist:

“To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

When Alan Greenspan was chairman of the FED, he deliberately put his foot on the gas (money supply) a touch whenever it looked like the economy was about to fall into a dark period. He’d then take his foot off the throttle when there was evidence that things were improving. Despite the excesses that were building in housing and the financial markets which eventually led to the crisis, it worked out pretty good.

The financial crisis presented a whole different world of really bad possibilities. Fed Chairman Bernanke and the rest of the global financial community realized that if the depression (both meanings of the word seem to apply here) was allowed to get worse economic suicide was a real risk. Governments have since been injecting the economy with more and more gas (stimulus) to try to get it back on its feet. But when is enough just enough? Can you imagine TV’s Homeland character Carrie Mathison unmedicated and on a strict diet of chocolate, coffee and Red Bull?

Back in the mid-19th Century the Ottoman Empire was falling apart. Greece, Serbia and Bulgaria were becoming independent and tax revenues from an obsolete feudal administration rapidly running dry. France, Britain and Austria wanted to keep the Empire afloat to serve as a roadblock to Russian aggression in the Balkans. By constantly throwing money (lending) at the Sultan (borrowing), who spent it lavishly and foolishly, European generosity actually accelerated the financial demise of the Empire not to mention collapse of banks all over Europe.

The fundamental divide between staunch Republicans and Democrats in the U.S. hinges on these same issues. The Republicans believe if the stimulus (akin lending money to the financial sector with borrowed future tax dollars) doesn’t stop the economy will inevitably blow up (bankruptcy) whereas the Democrats want to keep adding fuel hoping for a more lasting high.

What these unbridled efforts to create prosperity have actually ignited is far more volatility than investors can stomach.

Once upon a time, the stock market was simply the culmination of multiple investment decisions – whether to buy, hold or sell individual stocks. In recent decades the introduction of securities that mirror the indexes brought a new layer of volatility to the party. Now an entire community of institutional and individual investors bet on the direction of the overall markets, using leverage no less. This simply adds fuel to the fire.

The bottom line is that every little development in the economy, reflected in those frequently published updates, has a pronounced impact on the whole stock market. This is not hard to see when graphically presented. Notice in the accompanying chart how the S&P 500 Index responds to unexpected shorter-term changes in economic news. These moves seem far out of proportion to the underlying trend which has been a relatively slow and steady improvement in corporate earnings and a fairly steady economic recovery.

What does this mean to the investor? In general it means he/she is scared out of his/her wits. A smart lady I was chatting with today was dumbstruck by an advertisement she read. Her bank was promoting a new so-called high interest savings account. The interest rate offered was 1.2%. We laughed out loud. It reflects the general aversion to the same volatility we’ve had to suffer of late. People would rather earn next to nothing than shoot for an uncertain but better rate of return in riskier assets.

At times like this – and there have been many financial crises over the past hundred years just like that crisis in the 1870’s that crushed the Ottoman Empire – it is usually wise to expect what is totally unexpected. We humans have a tendency to expect the current situation to simply continue. But because investors will demand an extremely high average rate of return from stock markets to compensate for the risk, the economist in me suggests that stocks must therefore be priced to deliver that generous return over the next several years. The optimist in me believes the mass aversion to volatility will cause the gambling community (as opposed to the investing community) to run out of clients and funding. Governments will begin a painful but necessary rehabilitation. A reduction in the magnitude of these bipolar swings will restore some semblance of economic health and investors willing to bet on stock markets today will be handsomely rewarded. After all, if it weren’t for rose-colored glasses we’d all be getting lumps of coal for Christmas rather than iPads.